Time For a Holiday?

Global markets are overbought and due for either a correction or consolidation.
We're now in the seasonally bad time of the year and the best outcome here
would be a mild correction. From a sentiment perspective, most investors have
factored in the 'green shoots' and they've positioned themselves for a near-term
economic recovery. For sure, certain economic data is pointing towards some
improvement, however (so far) nothing has been done to help the distressed
homeowners. The West is dealing with a massive debt overhang and policymakers
are only transferring private-sector liabilities to the state. These gigantic
losses are real and politicians have decided to distribute them amongst the
unsuspecting public. Unfortunately, a second wave of foreclosures is now creeping
in and we may not get a swift and robust economic recovery. If the housing
situation worsens, then all bets will be off and the financial markets will probably face
a sharp decline. At this stage, we think any correction will end above the
March lows and we're sitting on a large cash position to capitalise on such
a weakness. After the horrendous crash last autumn, it is unlikely that the
markets will continue to head higher without a rest. Look; market risk is currently
high based on technical and sentiment indicators and we'd recommend that you
keep roughly 50% of your investment portfolio in cash. This way, if the market
moves higher, you'll still benefit but if we get a correction, you'd be able
to re-invest at lower prices.

Over in the energy complex, crude oil reached $70 per barrel last week and
is giving back some of its gains today in Asia. Over the following days, we're
likely to witness a correction in crude oil. On a different note, natural gas
is still trying to carve out a bottom and should be accumulated by long-term
investors. The price of natural gas is extremely inexpensive and should rise
significantly over the coming year. So, we'd suggest that you buy into physical
natural gas or the producing stocks on any near-team pullback.

In the currencies markets, the US Dollar Index is finding some support around
this area and a sharp rally wouldn't surprise us here. Most people are now
bearish about the US Dollar and sentiment is at an extreme, so a rally of 5-7%
can be expected. On the other hand, most major currencies are now overbought
and due for a correction. If our assessment is correct, the next few weeks
should coincide with strength in the US Dollar and pullbacks in the Euro, British
Pound, Aussie Dollar and Canadian Dollar. So nimble traders may want to act
accordingly.

As far as precious metals are concerned, both gold and silver are likely to
correct over the following weeks but we don't expect a major decline. During
the correction phase, silver will fall more than gold but both should be bought
later this year. Same rules apply for precious metals mining stocks. Our recommendation
is to wait before adding to your positions in this sector. If a rally in the
US Dollar materialises, precious metals will correct and you'll be able to
buy into real money at lower prices.

Finally, in the fixed-income sector, US government bonds are now very beaten
down and the next phase of credit contraction should usher in a big rally.
At the moment, everyone is convinced that the US will enter hyperinflation
and US government bonds have suffered accordingly. However, in last week's
speech, Mr. Bernanke made it clear that the Fed wasn't going to keep monetising
debt by printing money. So, we may not get hyperinflation in the near future
and the 30-year US Treasury Bond should appreciate over the summer months.
Make no mistake; as a result of all the bailouts and stimulus packages, the
cost of living will probably double within the next decade, however we don't
foresee huge inflation over the next six months. When others come to the same
conclusion and there is another flight towards 'safety', US Treasuries will
probably rally in tandem with the US Dollar.

Puru Saxena is the CEO of Puru Saxena Wealth Management, his Hong Kong based
SFC regulated firm which offers discretionary portfolio management and research
services to individual and corporate clients. The firm manages two trend-following
strategies - Discretionary Equity Portfolio and Discretionary Fund
portfolio. In addition, the firm also manages a Discretionary Blue-chip
Portfolio which invests in high-dividend world leading companies. Performance
data of these strategies is available from www.purusaxena.com

Puru Saxena also publishes Money Matters, a monthly economic report,
which identifies trends and highlights investment opportunities in all major
markets. In addition to the monthly report, subscribers of Money Matters also
receive "Weekly Updates" covering the recent market action. Money Matters is
available by subscription from www.purusaxena.com